A Start-Up Firm Is Making an Initial Investment in a New

question 73

Multiple Choice

A start-up firm is making an initial investment in a new plant and equipment.Assume that currently its equipment must be depreciated on a straight-line basis over 10 years,but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years.If the legislation becomes law,which of the following would occur in the year following the change?

• A) The firm's operating income (EBIT)would increase.
• B) The firm's taxable income would increase.
• C) The firm's cash flow would increase.
• D) The firm's tax payments would increase.
• E) The firm's reported net income would increase.

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Definitions:

Smog

A type of air pollution characterized by a mixture of smoke and fog, often resulting from industrial emissions and vehicle exhaust.

Stratospheric Ozone

A layer of ozone molecules located in the Earth's stratosphere that absorbs and protects living organisms from the harmful effects of the sun's ultraviolet radiation.

Ultraviolet Radiation

Electromagnetic radiation with a wavelength shorter than that of visible light, but longer than X-rays, which can have effects on the skin such as sunburns and vitamin D synthesis.

Gamma Radiation

Electromagnetic radiation of high frequency and thus high energy, often emitted by radioactive materials.